7 must do things on Property Loan Prepayment and

Closure procedure
Closing a Property loan and owning a debt free home is a dream comes true. It is time to enjoy the
rental income without any worry. But a Property loan closure must be completed properly to ensure
no further problems arise in future.
Jeeva is my neighbour in Chennai who had bought a house 10 years ago. He had pre-closed his loan
2 years ago. When he was about to sell his house last month, he was in for a rude shock.
The bank had returned the original documents 2years ago but had failed to remove the lien on
mortgage entered on the neither house nor provide1 the No Object Certificate.

This prevented him from having an immediate sale and he had to get the pending documents. It is
the responsibility of the bank to provide these documents once the home loan is closed.
In India, sometimes you dont get unless you ask for them. So be sure to ask what you need. Let us
now dive into what things you must do once you pay all your home loan instalments and close your
home loan.

Home Loan Pre-payment

Home loan pre-closure is nothing but making your home loan debt payments to the bank in part or
full before the tenure. A home loan is usually for 15 to 20 years and is one of best investment
options. If youre planning to close this before the scheduled tenure then you must let the bank or
financial institution in writing.

Banks and housing finance companies usually charge a prepayment penalty if loan is closed ahead of
tenure. Some banks do not levy this if you establish the source of funds used for pre-payment. This
will involve furnishing your salary slips or ITR filing with bank statement.

7 must do things on Property loan closure

We have provided 7 points which you need to follow to complete the property loan closure.
Points 1,2,3,7 are the most important. Dont neglect or miss them at any cost.
1) Get back all the original documents
Once you have made all your payments, the Bank or Housing Finance Company will likely
give you the original documents. You should make sure that all the documents you
submitted with the bank when taking the loan are returned. Usually it will be the Title Deeds
and Mother Deed (if applicable).
Dont just check for document alone. Make sure that all the pages are present in good
condition as well1. I have seen instances where last page of sale deed went missing. In that
case you need to arrange for the missing page which is a tedious process.
Make sure all the pages are intact in front of the bank official before signing on the
acknowledgement of the bank.
Once you sign, you cant undo it and banks usually wont be responsive in this regard. It is
usually a good procedure to obtain the documents from bank by visiting them than request
documents by courier.
Tip: Once you get the originals scan them and keep a soft copy in a safe place.
2) Obtain No Object Certificate

NOC or NC is a No Object certificate which is a clearance certificate from the bank or

housing finance company1. This states that the Bank does not have any more interest in the
property and its cleared by the bank after removing all hypothecation.
When you get this make sure the NOC clearly mentions the Property details (like address
etc.,) , name of the borrower, Property loan account number, date of loan starting and
closure, amount borrowed and repaid(some banks dont mention) .
Also a clause should be clearly mentioned that the borrower has paid all the dues and the
property is now debt-free. This will make sure that the property is entirely yours now.

3) Remove lien on property from Registrar Office

In some cases where the credibility of the borrower is questionable, some banks might have
created a lien. A lien is nothing but a transaction registered in the Registrar office which
prevents you from selling the property.
If no lien was created, then there is no issue. However, if a lien was created then it is
important to have this lien removed.
A bank official will accompany you to the Registrar office to terminate this lien. Remember
that you will not be able to sell the property unless this is removed.

A Property loan closure is incomplete without this process. This is what delayed
things for my friend Jeeva mentioned in the beginning. It will take 7 to 10 days for
changes to reflect in the Registrar accounts.
4) CIBIL Credit Update

Lenders do not show the same interest in updating CIBIL when loan is repaid as when loan is
taken. Banks/finance institutions often delay or forget to inform CIBIL when a home loan is
pre-closed.
A CIBIL score is nothing but proof of your credit worthiness. It takes 20-30 days to complete
the process. Be in touch with your bank to make sure this is done (Its likely you wont get
proper response .A good relation with banker comes in handy). Once the bank informs its
done, get an updated CIBIL report to make sure it is reflected in score.
5) Get legal clearance certificate from lawyer

A legal clearance certificate from a reputed lawyer is an optional attachment. Some people
dont prefer to get this. But we suggest you get this as this will speed up your process if you
plan to sell the house. It also helps to get a legal opinion to make sure the home loan
closure procedure is indeed complete.
6) Have a detailed track of loan repayments

It is advisable to keep a track of your bank statement which reflects your Loan EMI. If you
made any lump sum prepayments keep a photocopy of the cheque/demand drafts. A handy
tip is to maintain a file for all home related documents than put them in a cover.
7) Obtain a new Encumbrance certificate from Registrar

This is a must do step. Once the bank has provided the NC and removed any existing lien,
apply for an EC in the Registrar Office. An EC is nothing but a document with all financial
transactions performed on the property.

Once the mortgage/loan is cancelled, it should be reflected in the EC. An EC is a very

important document. So if the latest EC does not reflect closure of loan, approach the bank
or Registrar for further procedure. Dont neglect this step. This will complete the home loan
prepayment procedure
Source: http://www.idbi.com/loan-against-property.asp